One way to typologize blockchains is to divide them into types based on their ability to access information on the network.
We know that blockchain is a decentralized systеm for storing, recording, and organizing immutable data that is transparent and open to all participants. However, it is structured to allow different levels of access to information. That is, the distributed database systеm itself retains its integrity and full functionality according to the principles of blockchain technology, but the degree of openness to different participants allows individual blockchains to be categorized accordingly.
This paper is an overview of the types of blockchain networks according to the parameter of the level of access rights to information and management. It will discuss the main types of blockchains, their characteristics, strengths and weaknesses, and their applicability in different areas.
Existing types of blockchains
Blockchain is a decentralized digital transaction ledger consisting of sequential and immutable chains of blocks. After a transaction is made, the transaction data is verified by miners or validators, and after validation, it is entered into the blocks. The data on the blockchain is transparent, yet securely protected from unauthorized access by advanced software and cryptographic methods.
So what kind of access is authorized?
The traditional classification of blockchains we consider is based on how the blockchain is organized in terms of how access to it is organized.
Different blockchains provide different levels of permissions to participants, and according to this criterion, they are categorized as follows
- Public;
- Private;
- Consortium.
Hybrid blockchains, which are a mix of the above, are also sometimes categorized as a separate category.
As key features of a particular type of blockchain, we can highlight such attributes as
- The ability to become a participant in the network;
- The level of access to the information stored in the blockchain;
- the degree of centralization of management (primarily mechanisms for creating new blocks and confirming transactions).
What is a public blockchain?
A public blockchain means complete openness. Any user can perform transactions, create new blocks and participate in governance. Public networks are usually open source, allowing the community to identify bugs and make necessary changes to optimize the blockchain.
The main advantages of public blockchains are that they are as decentralized, transparent, and democratic as possible. There is no centralized control, all users have equal rights, and their level of participation is based on the amount of resources (financial, hardware, or other) they contribute to the network. Interaction between participants, confirmation of transactions, and making changes to the blockchain is governed by a software mechanism — a consensus algorithm and protocols used in the network.
The main weakness of this type of blockchain compared to others is considered to be its lack of scalability. Such networks interact with a large number of users and cannot always provide uninterrupted performance at peak times. This results in slower and more expensive transactions. In addition, the risks of a 51% attack have never been eliminated. Moreover, the risks of a 51% attack have never been eliminated. Threats of this type are classically inherent in blockchains that use the PoW consensus algorithm — there is always a risk that hackers will be able to gain control and disrupt the integrity of the network.
Public blockchains are the most common form of cryptocurrency network organization. The most prominent examples of public blockchains are bitcoin, ethereum and litecoin. This type of blockchain is also ideally suited and increasingly used for supply chain tracking processes, voting, opinion polls, public governmental and non-governmental registries.
However, not in all cases do private companies or government agencies seek openness and trust. In cases where there are other priorities in accomplishing tasks, the types of networks we will discuss next are used.
Private Blockchains
In this type of blockchain, management is centralized, meaning it is in the hands of a well-defined set of individuals. Access rights to make changes in these types of networks are strictly limited and usually differentiated by tiers. Source code is in most cases closed. That is, it is a kind of closed, partially decentralized database that is tailored to the needs of a particular company. Depending on the goals and objectives of the blockchain, it may have public access to read the data.
This type of blockchain is characterized by a smaller number of authorized participants, which gives it higher performance, speed and scalability.
The use of private blockchains in business is driven by companies’ need to maximize information privacy or the convenience of distributed ledger technology for internal document management or other business processes. Similarly, the use of private blockchains in government agencies can also be seen. In other words, private networks are an ideal solution for organizations that want to take advantage of blockchain technology to address internal issues that do not require (or, in some circumstances, are prohibited from) the general public.
That is, where privacy, immutability, speed, and security take precedence over decentralization, transparency, and protection of user identities, private blockchains serve as the optimal solution. They are lighter and faster than public blockchains, allowing for high-speed data exchange.
The main disadvantages of private blockchains, besides centralization, are their high cost — they are not created and maintained by the community, but by individual companies or organizations. And as the databases grow and the number of transactions increases, so do the costs.
The use of this type of blockchain in a corporate environment is more widespread than for public projects. Large companies prefer to keep their assets, commercial advantages, and proprietary developments private from the public and competitors.
Examples of private blockchains that interact with cryptocurrencies inсlude Ripple, R3 Corda, Hyperledger and Fabric. However, some experts tend to categorize them as a hybrid type.
Public vs. Private Blockchains
Before choosing a type of blockchain for a project, it is necessary to make a comparison of its characteristics according to the main criteria.
- Availability. We found out that the main difference between private and public blockchains is that in the first case the management is consolidated in the hands of a limited number of authorized persons, while in the second case there are no access restrictions and anyone can join the network, make transactions, change information and create new blocks.
- Control. In decentralized public networks, there is no single point of control and it is impossible to make changes to confirmed records, whereas in private networks, an authorized operator can make any adjustments, up to and including deleting records.
- Transparency. Private networks give the right to view the movement of transactions to a separate circle of people, public networks — to all comers.
- Security. Features of decentralization in different types of blockchains determine the level of their security. Certainly, security in public and private blockchains is ensured by cryptographic tools, but private networks carry some risks due to increased centralization, which increases the potential damage from hacker attacks.
Consortium Blockchains: Features and Applications
Consortium blockchains (blockchain consortiums) are a type of network that brings together multiple entities in governance. In this case, separate organizations take on specific roles in supporting the blockchain, and each participant plays a different role in the process of verification, transaction registration, and blockchain formation. To understand how a consortium blockchain works, imagine the process of approving a document to verify its validity. For example, a consortium is represented by 10 companies, 5 of which are directly involved in a document, and they all have to approve it. This type of blockchain is sometimes referred to as a federated blockchain, meaning that organizations come together in some kind of alliance to achieve common goals.
Consortium blockchains are actively used in the financial sector. It is used by both banking and non-banking institutions to organize cross-border payment, trade finance and identification systems. A blockchain consortium like Energy Web Chain connects energy industry players with consumers to meet the operational and regulatory needs of the energy sector. Or the not-for-profit blockchain consortium GSBN (Global Shipping Business Network), which was created to allow ocean carriers and terminal operators to collaborate quickly and efficiently.
Consortium blockchains are most effective when different companies in the same industry need a common database to share information quickly and reliably.
These networks typically incorporate features of both private and public blockchains. Authorized validators, whose list of validators is agreed upon in advance, confirm transactions. Ordinary users can only initiate and receive authorizations.
Benefits of blockchain consortium:
- Greater scalability compared to public ledgers.
- Greater security compared to centralized private blockchains (management is more decentralized through a group of organizations rather than a single center).
Consortium blockchain drawbacks:
- Lack of consistency. Due to the presence of multiple authoritative decision centers, there may be delays in developing updates and improvements to the network — the consortium must reach consensus on any changes.
- Limited decentralization. This type of blockchain is less resistant to censorship and hacking than public blockchains.
Conclusion
When comparing blockchain types, the main conclusion is that they differ in terms of openness, and this affects their speed, privacy and security.
The classification given in this article can be useful for a general understanding of the blockchain market or when deciding whether to invest in a particular project. The level of transparency of a blockchain can help you predict profits more accurately and influence its development. And on the other hand, with a high degree of trust in the owners of private or consortium networks, you can safely make money without wasting time on your own analysis and risk forecasting.
Thank you for your time. Invest safely and profitably!
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